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Experts Corner

TALK TO EXPERTS - 24

Author

In this session,
we will take up the issues related to the exit policy for the NHAI projects and
the concessionaire.

Due to financial
crunch, many NHAI projects were allowed to languish depriving the people of the
benefits of the projects. In the earlier sessions, we looked into the reasons
for the cash crunch the concessionaires faced generally and, necessarily, the government
had to step in and find some remedial measures in such a way that the ultimate
benefits of the project reach the people at the earliest and the
concessionaires also are helped effectively and reasonably. To come out of the dead end of the NHAI projects
that halted without progress, it was found that strategic exit policy would
come a long way in redeeming the sorry situations. The government had to revise
the exit policy that would bring relief to the concessionaires and at the same
time, the stalled projects would get new lease of life. Let us briefly consider
the exit policy, both the past and the present.

Earlier, the
private party or the consortium awarded the project must hold a minimum level
of ownership in the project. The minimum
level usually was 26% of the shareholding of the SPV developing and operating
the project. This provision of the
minimum level of ownership expected the developer to remain involved in the
project in the sense that a substantial value of his assets cannot be monetized. It was believed that this lock-in of his
assets would motivate him to complete the project as early as possible. But
this did not work out effectively. All
the same, the project developers found themselves strangled by liquidity crunch
and financial stress and they did approach the government to bail them out of
this unproductive and unprofitable situation with some new exit policy.

The government
had to act.

The government
came out with a new exit policy in 2014. The new exit policy allowed the project
developer to exit fully by what is called a ‘harmonious substitution’
mechanism. In the comprehensive exit policy, it was announced that the exit
facility was available for all BOT projects “irrespective of the year of
award”.

The lenders or
NHAI must view that the project developer’s company is most likely to
experience financial distress leading to breach of the concession agreement; it
only meant simply that the project developer would not be able to complete the
project and it would remain languishing. The substitution is permitted if the
project developer is likely to land himself in liquidity crunch and financial
distress.

In the final
shape of the new exit policy, the developers are allowed to divest 100 percent
equity two years after the completion of construction. This decision enables
the developer to use the divested equity proceeds to invest in non-NHAI
projects also. In short, money will be available for investment in all
infrastructure projects, not necessarily in NHAI projects alone.

And by proper
substitution which includes the competency of the substituting party in all
dimensions of the project, the long languishing NHAI projects will see
completion soon.